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Embracing risks and turning them into success

Interview - August 20, 2013
World Report sits with Marzouk Nasser Al-Kharafi, Chairman of Americana Group, the Middle East and North Africa's most successful group of companies operating restaurants, and manufacturing consumer foods and food-related products, as well as Board Member of Kharafi National. The man who invented the Kentucky Fried Chicken line of sandwiches shares his vision on Kuwait and the GCC region’s opportunities
CHAIRMAN OF AMERICANA AND BOARD MEMBER OF KHARAFI NATIONAL
MARZOUK AL-KHARAFI | CHAIRMAN & MANAGING DIRECTOR OF AMERICANA AND BOARD MEMBER OF KHARAFI NATIONAL
Mr. Al-Kharafi, you stated two years ago at the Arab Economic Forum that investment in the Arab world is the “best, the most secure, and the most useful". Your company has a presence from the Atlantic Ocean to the Caspian Sea in large infrastructure projects for instance. However, the Arab world is shaken up and there is fear in the West.  Do you think that the Arab world is still the best and most secure place to invest in?
 
I know that there is a lot of turbulence around, but with the resources here, it will always be an important region. All eyes will be on this region, which is the main source of oil globally. Oil provides stability for the whole world despite being the cause of previous wars. I definitely think that the region will always be attractive for any investor or development.
 
How and when do you see this Arab Spring finally blossoming, and for the region to finally regain its stability?
 
You have to look at each country individually. There are countries which are really safe, where you can do business, but there are others where you have to wait until they regain power again. Kuwait, UAE and Saudi Arabia are ready for any foreign investment or business interaction. They are really safe places to work in. Others are less secure.
 
Kuwait has been resilient. We have a lot of democracy, which really helps us sustain our ability to be away from the Arab Spring. People can work freely and enjoy all the confidence and security they need to operate. It is a shame that Kuwait had to lately pay a compensation for Dow, but it proves that Kuwait is a safe haven for anybody to come and work in. If the project does not go through for any reason, you will be compensated and you have the right to follow legal action and receive what is rightfully yours.
 
The State of Kuwait is blessed with natural resources. Some have acknowledged this as a blessing, whereas others view it as a threat, as they believe that people rely too much on hydrocarbons. The National Development Plan (NDP) will help Kuwait not to depend so much on oil. You are optimistic and it is fantastic to see this. How do you see Kuwait realising its full potential and how do you see the NDP finally coming into being?
 
We have been talking about this National Development Plan for a long time. Kuwait has only been successful when the reins were in the hands of the private sector so to speak. The private sector was the pioneer in shipping centers, airlines etc. There was a period of time, though, when these reins were taken away from the private sector. But then people realised that there would be no development with only government spending. People would tend to get lazy and entrepreneurship would be killed without the private sector, so the Government is giving the reins back to the private sector once again. 
 
We are seeing some movement in the NDP; projects are being tendered, and they are not just words on paper anymore – real projects are being implemented, like the refinery and the power project in Al Zour North and the Jaber Al Ahmad Bridge, as well as hospitals. The development plan is happening. 
 
By next year, we expect to see Kuwait like a beehive. We need technology and the experience of these huge foreign companies, and Kuwait will be a good environment to work in.
 
And once that happens, that will spread the word.
 
You can see what is happening in Europe with the lack of mega-projects. They have huge companies that need huge projects to fuel on, and to carry on. The fuel is here in the region. Saudi Arabia also has a huge development plan, as well as other Gulf countries. Kuwait will definitely be one of these countries. As an example, companies that did not previously think about coming here to do projects (like Spanish companies, for example) are now becoming so aggressive here with power projects, whereas they were not so much in the past. They are offering aggressive prices.
 
This is something that David Cameron noted when he came to Kuwait two years ago. As a corporation that has partnerships with a lot of companies abroad, what do you think the UK could bring to Kuwait?
 
The UK can bring a lot to Kuwait. Kuwaitis have a lot of respect for UK companies and brands. They have always been recognised as being quality companies and brands. They have a lot of wealth and experience as well as knowledge and quality implementation. The first brand that Americana brought into Kuwait was Wimpy, which is a British company. 
 
I remember my father, bless his soul, telling me the story. In 1968 the first Wimpy was opened in Kuwait. My father was educated in Liverpool in the UK, and he used to go to Wimpy there, and he thought that it was something that would work here in Kuwait. When he started to implement his plan, people asked him what the two pieces of bread and a piece of meat were. They used to eat rice and curries. They asked him who would eat this kind of thing. But he was sure that people would love it. 
 
He took a risk and he was a pioneer. We opened the first Wimpy in 1968, and people were queuing. We had to close for maintenance once a week. There was no time to do it. There are other UK brands here in Kuwait that are valued and respected by Kuwaitis. We as a group have a stake in Costain, a UK construction company. We have worked together in the region. We saw English companies’ level of capability. It is really impressive. We would really like to see more risk appetite from UK companies. This will give them more visibility here and more work. They need to take more calculated risks and push themselves a little more to get more work.
 
There are very close emotional ties with the UK, although this has slowed somewhat recently. Do you think that renewed interest will turn into actions?
 
I really hope so. There are steps that show that this is indeed turning into actions. There is the Joint Council for Business between Kuwaiti and British companies, but I think that the British companies need to take more risks. I think they were focusing a lot on the internal issues in the UK more so than external issues. They need to get outside, as they have done in the past, and regain this leadership position.
 
Steve Jobs said that innovation is what distinguishes a leader from a follower. What is your take on innovation, and how does Americana and Kharafi National innovate?
 
They are in two different sectors. I will start with Americana. It is true; innovation is very important for the success of any group or company. Americana implemented this and we were recognised for it. KFC is one of our brands. Americana is the leading food company in the Middle East. We have two pillars: restaurants and franchises, and food manufacturing. 
We have 23 companies on the food manufacturing side under our umbrella, and we have joint ventures with many international companies, like Heinz and Cadbury. We also have franchises, like KFC, Pizza Hut, Baskin-Robbins and Krispy Kreme. We need innovation in these brands to succeed and to differentiate ourselves from others.
 
But they are not your brands, so how do you innovate?
 
I will give you an example. KFC is one of our important brands in the franchises portfolio. KFC used to be all about bones and chicken, but we were the first to develop the sandwich line. We convinced them that they needed to provide sandwiches. They were hesitant as it was against their traditional thinking, and they thought that it might shift the mindset of the people, but we thought that it would be positive, not negative. We tested it, and people loved it. We rolled it out and it was a huge success. And then the mother company took the line from us.
 
You should have asked for the patent!
 
Yes. Sometimes people innovate for you, but you need to implement it properly and continue to be the pioneer, whether it is in existing markets or new markets. For instance, we went to Kazakhstan, and that was a jump for us, being out of our region. But we saw that there was nothing there. We did not innovate; but those brands were not there in Kazakhstan.
Now we have 16 stores in just two years, and it is one of the most successful countries for us. We have thought about Africa. We have a small operation in Sudan, but Sudan is not stable yet.
We are looking at other areas. You pick and choose the best markets. You expand in our region, and then you look at the easiest place to go, where it is easy to do business and obtain materials. Africa is not so easy in that respect, so there are other areas that you can go to first before you go there. So you prioritise.
 
How does Kharafi National innovate?
 
Kharafi National innovates by bringing solutions for Kuwait infrastructure development. We look at where there are issues to resolve and we come up with ways to help solve these problems. We did the first BOT (Build Operate Transfer) project, which was the Sulaibiya Waste Water Treatment Plant, using reverse osmosis (RO) technology. That is high-tech, which is not available in the region. This gives you drinkable water from sewage. It treats 60% of Kuwait’s sewage. We are in the process of expanding it now.
 
Also, one of the big projects is gas extraction from oil. That is a very important project for Kuwait. This is something new for Kuwait – it is not a real BOT, but it is a partnership between the KOC and us.  We have always been there for the Government, helping them find ways to solve the issues regarding infrastructure. In power, there were not many power projects in the region, so governments built these initially on their own, but we have lately constructed three power projects in Egypt totalling 1,500 MW in a record time of seven months, during the revolution. You cannot live without electricity, and if there is a shortage in power, there is chaos. 
 
We worked hard. We were working 24 hours a day during the revolution. I opened 28 restaurants during the revolution year in Egypt. We are risk takers; it is in our genes.
 
We have a great relationship with all sectors. We are not seen as pro this or that. People admire us, and they like the Kharafi Group, especially in Egypt. We have very strong ties with Egypt. My father loved Egypt, and we invested a lot in that country. We have about 75,000 employees in Americana, and a lot of them are Egyptians. We did not have any problems with anyone there, and we worked safely there under the protection of the army, in case there was looting. We completed all our projects in record time, and we were recognised for that by many international companies, including some of our competition.
 
How did you do it in such a short period of time?
 
It was because of the people who are the core of our companies. We are always very proud that our main asset in Kharafi Group and Americana is our people. We depend on them. We trust them, and make them feel as if this is their company. The invasion of Kuwait lasted for seven months, and there was no work in Kuwait. Expats went back home and the Iraqis were controlling the country. 
 
At that time, I remember my father saying that he wanted all the salaries to be paid to the people. The financial manager at the time said that there was no income in Kuwait, although there was income in other countries. My father said that it was a phase and it would surely pass, so we needed to maintain the trust of our people and pay them salaries. So the workers got paid every month, despite the financial manager saying that the workers understood the situation and that they would be grateful to even get paid half their salary. But they got paid their full salary. That made them feel as if they were part of a family.
 
After the liberation of Kuwait, the first companies that worked in Kuwait were those in the Kharafi Group. The first restaurant to open was KFC. People were lining up to get into Kuwait from Egypt and other areas. The first construction company to operate was Kharafi. We worked with engineers to build Kuwait, and we built the parliament in record time (it was up and running in six months). We are very proud of that.
 
Kharafi National has built and rebuilt Kuwait, and it remains in the country. You said that Kuwait will be a beehive next year - will Kharafi National be the Queen Bee?
 
That is our plan. We see it happening, because we have invested a lot. The plan was delayed unfortunately, but it has to come. We have invested in a lot in equipment as well as human resources, so we are ready in this regard. We also have our camps and distribution network. It is all ready. That is why in all the mega-projects that are being tendered, you find the big international companies contacting us to try and partner with us, before anybody else. That is a good situation to be in.
 
What is the main lesson that your father taught you, which you would like to pass on?
 
Integrity. His word was better than any contract you could think of. We have been in difficult situations where people do not really stick to their word. I saw him stick to it like nothing else, and that is something that I will never forget. 
 
For example, we won a power project in Kuwait, which was very important to stop blackouts in Kuwait. The minister of power at the time went to parliament three times, begging them to go ahead with the project. It was tendered, we bid for it, and we won it fair and square in 2008. It was called the Emergency Power 2008. We won it unanimously from the ministry and the Central Tendering Committee and they told us that they needed our help, so we had to work as fast as we could. There was a heavy penalty if we were delayed. We took on the challenge, but we needed to sign the contract, and that procedure took a bit of time to sign the contract. But since we had approval from the ministry and the Central Tendering Committee, they even granted us access to the site and the land upon which we were supposed to start construction. However, there was a lot of corruption in the project.
 
Back in 2008, there were more stringent requirements for the project – for example, we needed to supply the serial numbers for the turbines before we started work, and in order to do that, we had to buy them. We took a risk at the time and we bought 20 GE turbines worth over 600 million euros. We were granted access to the site, so we started working for two months. We were working at full steam, because we wanted to save Kuwait from the blackouts. We bought the turbines in cooperation with a local bank and they were involved in the risk. The turbines were their collateral. But two months down the line, the minister said that they had decided to cancel the project.

There was something wrong with the Parliament at the time. My father could have easily told the national bank of Kuwait that they could have the turbines, as nothing was signed, and the collateral were the turbines. But he said that he took the turbines in good faith, but unfortunately we were mistreated at the time. He kept paying the interest and the loan for four years until we found a home for the turbines. We managed to do this project in Egypt.
 
Integrity, sticking to your word and taking care of your people is the most important lesson. They are your main assets. You are as good as they are. If they trust you and work with you as a family and as a team, you will always be in good hands and good faith at least. Believe me, everything happens for a good reason, and we are strong believers in that. 
 
We were really hurt by this, but looking at the big picture, this was 2008, and this was before the collapse. We as a group have resources, and these resources are limited. We spent a lot of money on those turbines. If we had not have done that, we would have had access to those funds and we would have maybe put it in the market, like we did with other facilities from other banks. The market collapsed and people lost more than 50 to 60% of their wealth, whilst we put the money in assets, like turbines, which were used in projects. 
 
There is a silver lining to any situation. These projects gave us a strong CV and we are recognised in the power sector. We are always at the top of the list in any power project with any international partner, because we have proven that we have completed projects in record time. Companies are approaching us, and Egypt recognises and thanks us for what we have done. I think we came out stronger, and it was a success story rather than a failure. It was hard work, and really difficult times, but it taught us a lot. We had to tighten our belt in different areas. It gave us a good CV and a good reputation and it saved us from losing money in other ways, such as markets or stocks. It was the ultimate stress test.
 
Where do you view Kharafi National in the next ten years? Do you see it expanding geographically?
 
I see it expanding regionally in areas that we are not in. I see that Kuwait is a platform for Iraq, and there are mega projects in Iraq that we are looking at. We have always had trust as Kharafi Group, but now we have it as Kharafi National as well. We are looking at Saudi Arabia, but they are very protective over their Saudi companies. We will have to find a way in, maybe through joint ventures. We have expertise in power and wastewater treatment, which is not easy to get. We are the authority in some areas. People send students from universities to learn at our plants.
 
We were bidding against the French, who are very strong, and the difference in price was less than 1% between us and the French.

The French Ambassador was lobbying to get the job, because they had the expertise and the difference was less than 1%. But because we are transparent and we stuck to our method, we won the project. We completed it in record time, and it is working beautifully. It will save the Kuwaiti Government more than $11 billion over its period of operation. There were another two projects that were in the UAE, and we bid for them. They were also against the French. It was very difficult. At the time, the French president was visiting the UAE and he was trying to push for the French companies to get the tender, and we were pushing on the other side. Funnily enough, the ambassador in Kuwait was the same one who moved to the UAE, and we won the two projects, again.
 
What would you say makes you Kuwaiti?
 
Our values mainly, and our genes. We are running the operations to international standards, but we do business the Kuwaiti way, based on trust and treating your people in the right way, making them part of the family. We are risk takers. I think these values make us Kuwaiti.
 
We have a strong focus on youth, and the youthful spirit of Kuwait. Kuwait is really witnessing a generational change. What impact do you think this will have on further development in Kuwait?
 
I see younger generations in important positions in the country, and the new planning board. A lot of them are very active and want to change things. I see them pushing change, and that is very important. They are hungry for change. We are pushing the young people in that regard, and we support them. We support different youth organisations. 
 
We even push individual entrepreneurs, such as sports entrepreneurs. We partner with a company called Global. We believe that they have to play a major role in developing Kuwait, and pushing and instigating change. You always need new blood – they are full of energy and ideas; you just need to guide them, support them and tell them what they are learning.
 
You embrace risk and make it a success. Kuwait is a welfare state, with people who have it all in a way. How do you maintain entrepreneurial spirit and why do you take risks when you do not need to?
 
You are right, but there are different people with different mindsets. There are people who depend on the Government and are lazy, but there are others who are thinkers, and they want to do something. They do not want to just get a free education and money from the Government. These are the people who we try and push, and work. Unfortunately we have not always been successful; some of them start off really energetic, but they see their friends who do not push themselves, and who just stay at home and get their salary. But others really want to do something and they want to see Kuwait differently. And they understand that oil is not going to be around forever.

You have to really admire how far ahead some people think. They think about their families and children, which is very nice.
 
What drives and motivates you?
 
When I think how our ancestors really made it. You realise how hard it was for them, shipbuilding and diving for pearls, and then trading and bringing spices. It was no joke leaving your families for six months. I really admire this. Not a lot of us can do this now. But oil is not going to be around forever, so you have to teach yourself and your children to work hard.

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